Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 9.4% over the past six months, almost identical to the S&P 500.
Although these companies have produced results, only a handful will thrive over the long term as AI-driven upstarts are rapidly taking share from the incumbents. Taking that into account, here are two resilient services stocks at the top of our wish list and one we’re swiping left on.
One Business Services Stock to Sell:
Viasat (VSAT)
Market Cap: $9.64 billion
Operating a fleet of 23 satellites that orbit the Earth and beam connectivity from space, Viasat (NASDAQ: VSAT) provides satellite-based communications networks and services for airlines, maritime vessels, governments, businesses, and residential customers worldwide.
Why Does VSAT Worry Us?
- Earnings per share fell by 2.6% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative returns on capital show management lost money while trying to expand the business
At $70.90 per share, Viasat trades at 113.9x forward P/E. Read our free research report to see why you should think twice about including VSAT in your portfolio.
Two Business Services Stocks to Buy:
Mirion (MIR)
Market Cap: $4.64 billion
With its technology protecting workers in over 130 countries and equipment used in 80% of cancer centers worldwide, Mirion Technologies (NYSE: MIR) provides radiation detection, measurement, and monitoring solutions for medical, nuclear energy, defense, and scientific research applications.
Why Do We Love MIR?
- Annual revenue growth of 10.8% over the past five years was outstanding, reflecting market share gains this cycle
- Adjusted operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Free cash flow margin increased by 8.7 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Mirion is trading at $18.25 per share, or 4.6x trailing 12-month price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Fair Isaac Corporation (FICO)
Market Cap: $25.19 billion
Creator of the three-digit number that can determine whether you get a mortgage or credit card, Fair Isaac Corporation (NYSE: FICO) develops analytics software and the widely used FICO Score, which is the standard measure of consumer credit risk in the United States.
Why Is FICO a Top Pick?
- Share repurchases over the last two years enabled its annual earnings per share growth of 29.3% to outpace its revenue gains
- Strong free cash flow margin of 34% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy
- Rising returns on capital show management is finding more attractive investment opportunities
Fair Isaac Corporation’s stock price of $1,087 implies a valuation ratio of 22.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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